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Vital Energy(VTLE) - 2025 Q2 - Quarterly Report

Glossary of Oil and Natural Gas Terms and Certain Other Terms Defines key oil and natural gas terms and financial reporting terminology used in the Quarterly Report - This section defines key terminology used throughout the Quarterly Report on Form 10-Q, covering terms related to oil and natural gas exploration, production, and financial reporting, such as 'Bbl', 'BOE', 'Benchmark Prices', 'Realized Prices', 'Proved reserves', and 'Senior Secured Credit Facility'7817 Cautionary Statement Regarding Forward-Looking Statements Highlights risks and uncertainties associated with forward-looking statements, including commodity price volatility and operational challenges - The report contains forward-looking statements concerning operations, performance, business strategy, reserves, capital expenditures, and liquidity, which are subject to various risks and uncertainties that could cause actual results to differ materially222426 - Key risks include commodity price volatility, changes in global supply and demand, economic conditions, ability to execute strategies and integrate acquisitions, transportation capacity constraints, and regulatory changes222426 - Reserve estimates are inherently uncertain, relying on data interpretation and price/cost assumptions, and may be revised based on drilling and production activities2325 - The company cautions against undue reliance on these statements and disclaims any duty to update them2325 Part I Item 1. Consolidated Financial Statements (Unaudited) Presents Vital Energy, Inc.'s unaudited consolidated financial statements and condensed notes for Q2 2025 Consolidated Balance Sheets Summarizes the company's financial position, including assets, liabilities, and equity, as of June 30, 2025 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Total current assets | $430,430 | $466,556 | $(36,126) | -7.7% | | Property and equipment, net | $4,518,965 | $4,997,897 | $(478,932) | -9.6% | | Total assets | $5,100,451 | $5,878,946 | $(778,495) | -13.2% | | Total current liabilities | $545,503 | $601,139 | $(55,636) | -9.3% | | Long-term debt, net | $2,321,294 | $2,454,242 | $(132,948) | -5.4% | | Total liabilities | $2,994,873 | $3,178,375 | $(183,502) | -5.8% | | Total stockholders' equity | $2,105,578 | $2,700,571 | $(594,993) | -22.0% | Consolidated Statements of Operations Details the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2025 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $429,627 | $476,371 | $941,807 | $958,710 | | Total costs and expenses | $794,286 | $358,572 | $1,320,606 | $703,604 | | Operating income (loss) | $(363,404) | $117,835 | $(377,434) | $255,272 | | Net income (loss) | $(582,572) | $36,702 | $(601,409) | $(29,429) | | Basic EPS | $(15.43) | $1.00 | $(15.97) | $(0.84) | | Diluted EPS | $(15.43) | $0.98 | $(15.97) | $(0.84) | - The company reported a significant net loss of $(582.6) million for the three months ended June 30, 2025, and $(601.4) million for the six months ended June 30, 202531 - This loss was primarily driven by a substantial impairment expense of $427.0 million (Q2 2025) and $585.3 million (YTD Q2 2025) and income tax expense related to a valuation allowance on deferred tax assets31 Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including common stock and accumulated deficit, for the period Changes in Stockholders' Equity (in thousands) | Metric | December 31, 2024 | June 30, 2025 | Change ($) | | :-------------------------- | :---------------- | :------------ | :--------- | | Common stock (shares) | 38,144 | 38,688 | 544 | | Common stock (amount) | $381 | $387 | $6 | | Additional paid-in capital | $3,823,241 | $3,829,651 | $6,410 | | Accumulated deficit | $(1,123,051) | $(1,724,460) | $(601,409) | | Total stockholders' equity | $2,700,571 | $2,105,578 | $(594,993) | - The accumulated deficit significantly increased by $601.4 million from December 31, 2024, to June 30, 2025, primarily due to the net loss incurred during the period34 - Common stock shares outstanding increased due to restricted stock awards and other equity-based compensation34 Consolidated Statements of Cash Flows Reports cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $603,326 | $496,991 | $106,335 | 21.4% | | Net cash used in investing activities | $(471,423) | $(432,335) | $(39,088) | -9.0% | | Net cash used in financing activities | $(141,888) | $(22,153) | $(119,735) | -540.5% | | Net increase (decrease) in cash | $(9,985) | $42,503 | $(52,488) | -123.5% | | Cash and cash equivalents, end of period | $30,194 | $56,564 | $(26,370) | -46.6% | - Operating cash flows increased significantly by $106.3 million year-over-year, primarily due to changes in net settlements received for matured derivatives36 - Increased capital expenditures for oil and natural gas properties led to higher cash used in investing activities36 - Substantial net payments on the Senior Secured Credit Facility resulted in a large increase in cash used in financing activities, leading to a net decrease in cash and cash equivalents36 Condensed Notes to the Consolidated Financial Statements Provides detailed explanations of accounting policies, significant transactions, and financial performance Note 1—Organization and basis of presentation Describes Vital Energy's business focus and the basis for preparing its unaudited consolidated financial statements - Vital Energy, Inc. is an independent energy company focused on the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin of West Texas3839 - The unaudited consolidated financial statements are prepared in accordance with GAAP, reflecting historical financial position, results of operations, and cash flows, with all material intercompany transactions eliminated3839 Note 2—New accounting standards Discusses the impact of recently issued accounting standards on the company's financial reporting - No new Accounting Standards Updates (ASUs) were adopted during the six months ended June 30, 2025454648 - ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures) are effective for fiscal years beginning after December 15, 2026, and December 15, 2024, respectively454648 - Both ASUs are expected to result in additional disclosures but will not impact the Company's consolidated financial position, results of operations, or cash flows454648 Note 3—Acquisitions Details the PEP Acquisition, including consideration paid and its impact on the company's properties - On February 2, 2024, Vital Energy completed the PEP Acquisition, purchasing additional working interests in producing properties for an aggregate price of $77.6 million49 - The consideration included 878,690 shares of Common Stock ($37.1 million) and 980,272 shares of Preferred Stock ($41.3 million), which were later converted to Common Stock49 Note 4—Property and equipment Reports full cost ceiling impairment expenses and details benchmark and realized prices for calculations - The company incurred full cost ceiling impairment expense of $427.0 million for the three months ended June 30, 2025, and $585.3 million for the six months ended June 30, 202551 - This impairment occurred as the unamortized cost of evaluated oil and natural gas properties exceeded the full cost ceiling, with no such impairment recorded in the comparable 2024 periods51 Benchmark and Realized Prices for Full Cost Ceiling Calculation ($/Bbl or $/MMBtu) | Commodity | June 30, 2025 (Benchmark) | June 30, 2025 (Realized) | June 30, 2024 (Benchmark) | June 30, 2024 (Realized) | | :---------------- | :------------------------ | :----------------------- | :------------------------ | :----------------------- | | Oil | $70.48 | $71.47 | $79.00 | $80.31 | | NGL | $70.48 | $15.65 | $79.00 | $14.10 | | Natural gas | $2.86 | $0.98 | $2.32 | $0.90 | - In Q1 2025, the Company sold working interests in certain oil and natural gas properties for net proceeds of $20.5 million, with proceeds and asset retirement obligations recorded as adjustments to oil and natural gas properties54 Note 5—Debt Provides details on long-term debt, including senior unsecured notes and the Senior Secured Credit Facility Long-Term Debt, Net (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | 7.750% senior unsecured notes due 2029 | $298,214 | $298,214 | | 9.750% senior unsecured notes due 2030 | $302,364 | $302,364 | | 7.875% senior unsecured notes due 2032 | $1,000,000 | $1,000,000 | | Senior Secured Credit Facility | $745,000 | $880,000 | | Total long-term debt | $2,345,578 | $2,480,578 | | Total long-term debt, net | $2,321,294 | $2,454,242 | - As of June 30, 2025, the Senior Secured Credit Facility had an outstanding balance of $745.0 million (down from $880.0 million at Dec 31, 2024) with a weighted-average interest rate of 7.171% and a borrowing base of $1.4 billion56 - The company was in compliance with all covenants56 - In Q1 2024, the company issued $1.0 billion in 7.875% senior unsecured notes due 2032, using proceeds to extinguish 10.125% senior unsecured notes due 2028 and reduce 9.750% senior unsecured notes due 2030 and Senior Secured Credit Facility borrowings606162 - No debt extinguishment loss was recorded in Q2 2025, compared to $40.3 million in Q2 2024606162 Note 6—Equity Incentive Plan Summarizes equity-based compensation awards activity and related expenses for the period Equity-Based Compensation Awards Activity (in thousands) | Award Type | Outstanding as of Dec 31, 2024 | Granted | Forfeited | Vested | Outstanding as of June 30, 2025 | | :-------------------------------- | :----------------------------- | :------ | :-------- | :------- | :------------------------------ | | Restricted stock awards | 665 | 675 | (113) | (327) | 900 | | Share-settled performance share unit awards | 48 | — | — | (48) | — | | Cash-settled performance share unit awards | 215 | 192 | (4) | — | 403 | - As of June 30, 2025, total unrecognized cost related to equity-based compensation awards was $30.1 million, with $3.9 million attributable to cash-settled liability awards, to be recognized over an expected weighted-average period of 2.12 years67 Equity-Based Compensation Expense, Net (in thousands) | Expense Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total share-settled, net | $3,233 | $3,934 | $6,837 | $7,435 | | Total cash-settled, net | $(127) | $453 | $(372) | $2,213 | | Total equity-based compensation, net | $3,106 | $4,387 | $6,465 | $9,648 | Note 7—Net income (loss) per common share Presents basic and diluted net income (loss) per common share, including factors affecting calculations Net Income (Loss) Per Common Share | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) available to common stockholders (in thousands) | $(582,572) | $36,399 | $(601,409) | $(30,081) | | Basic EPS | $(15.43) | $1.00 | $(15.97) | $(0.84) | | Diluted EPS | $(15.43) | $0.98 | $(15.97) | $(0.84) | | Weighted-average common shares outstanding (Basic) | 37,761 | 36,381 | 37,670 | 35,973 | | Weighted-average common shares outstanding (Diluted) | 37,761 | 37,605 | 37,670 | 35,973 | - Due to net losses in the current periods, non-vested equity-based compensation awards and outstanding preferred stock were excluded from diluted EPS calculations as their effect would be anti-dilutive7172 Note 8—Derivatives Explains the company's use of commodity derivatives to manage price risk and their financial impact - Vital Energy uses commodity derivatives (puts, swaps, collars, basis swaps) to hedge price risk and mitigate cash flow volatility, settling based on WTI NYMEX for oil, Mont Belvieu OPIS for NGL, and Waha Inside FERC for natural gas7377 - Derivatives are not designated as hedges for accounting purposes, with fair value changes recognized in non-operating income/expense7377 Gain (Loss) on Derivatives, Net (in thousands) | Derivative Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commodity | $51,571 | $9,425 | $104,249 | $(146,410) | | Contingent consideration | $17,422 | $(1,767) | $8,915 | $1,921 | | Total | $68,993 | $7,658 | $113,164 | $(144,489) | Open Commodity Derivative Positions as of June 30, 2025 | Commodity/Type | Remaining Year 2025 Volume (Bbl/MMBtu) | Remaining Year 2025 Wtd-Avg Price ($) | Year 2026 Volume (Bbl/MMBtu) | Year 2026 Wtd-Avg Price ($) | Year 2027 Volume (Bbl/MMBtu) | Year 2027 Wtd-Avg Price ($) | | :----------------------------- | :------------------------------------- | :------------------------------------ | :--------------------------- | :-------------------------- | :--------------------------- | :-------------------------- | | Oil (WTI NYMEX - Swaps) | 11,279,200 Bbl | $68.82/Bbl | 13,306,500 Bbl | $64.02/Bbl | 3,285,000 Bbl | $61.07/Bbl | | Oil (WTI NYMEX - Collars) | — | — | 1,086,000 Bbl | Floor $60.00, Ceiling $71.02 | — | — | | NGL (Non-TET Propane - Swaps) | 1,748,000 Bbl | $34.16/Bbl | — | — | — | — | | NGL (Non-TET Ethane - Swaps) | 2,208,000 Bbl | $11.04/Bbl | — | — | — | — | | Natural gas (Waha Inside FERC - Swaps) | 32,238,000 MMBtu | $2.32/MMBtu | 51,830,000 MMBtu | $2.41/MMBtu | 43,800,000 MMBtu | $2.70/MMBtu | - The company holds a contingent consideration derivative from a 2021 asset sale, with an estimated fair value of $25.2 million as of June 30, 2025, representing potential payments up to $93.7 million through June 20277981 Note 9—Fair value measurements Details fair value measurements for derivative assets and liabilities, including Level 3 valuations Net Derivative Asset (Liability) Positions (in thousands) | Classification | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Current Derivatives (Asset) | $129,444 | $101,474 | | Noncurrent Derivatives (Asset) | $33,165 | $34,564 | | Current Derivatives (Liability) | $0 | $0 | | Noncurrent Derivatives (Liability) | $(19,466) | $(5,814) | | Net derivative asset (liability) positions | $143,143 | $130,224 | - The Sixth Street Contingent Consideration is categorized as a Level 3 fair value measurement, with its fair value determined using cash flow projections provided to a third-party valuation specialist818788 - The fair value increased from $16.3 million at December 31, 2024, to $25.2 million at June 30, 2025818788 Debt Carrying Amounts and Fair Values (in thousands) | Debt | June 30, 2025 (Carrying Amount) | June 30, 2025 (Fair Value) | December 31, 2024 (Carrying Amount) | December 31, 2024 (Fair Value) | | :--- | :------------------------------ | :------------------------- | :---------------------------------- | :----------------------------- | | Total Debt | $2,345,578 | $2,139,443 | $2,480,578 | $2,455,032 | Note 10—Commitments and Contingencies Outlines significant contractual commitments and ongoing legal proceedings - The company is subject to various legal proceedings in the ordinary course of business, but management believes these will not have a material adverse effect919293 - Significant contractual commitments include $77.2 million for firm product sales/transportation, $228.4 million for electricity purchases through 2032, and $31.1 million for processed sand purchases through 2026919293 Note 11—Supplemental Cash Flow and Non-Cash Information Provides additional details on cash flow items and non-cash transactions for the period Supplemental Cash Flow and Non-Cash Information (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest, net | $97,199 | $96,711 | | Right-of-use assets obtained in exchange for operating lease liabilities | $15,875 | $33,874 | | Change in accrued capital expenditures | $14,251 | $(873) | | Equity issued for acquisition of oil and natural gas properties | $0 | $74,928 | Note 12—Income Taxes Details income tax benefit (expense), including the impact of valuation allowances on deferred tax assets Income Tax Benefit (Expense) (in thousands) | Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Current | $(1,070) | $(1,062) | $(1,832) | $(2,237) | | Deferred | $(238,100) | $(9,347) | $(236,289) | $7,577 | | Total | $(239,170) | $(10,409) | $(238,121) | $5,340 | - The company recorded a significant income tax expense for Q2 2025 and YTD Q2 2025, primarily due to a $237.9 million discrete charge related to establishing a valuation allowance against its federal net deferred tax asset9799 - This was driven by anticipated cumulative three-year pre-tax losses resulting from full cost ceiling impairments9799 - As of December 31, 2024, federal net operating loss carryforwards totaled $897.0 million100105 - The recently signed OBBB Act, effective for tax years beginning after December 31, 2024, will permanently restore EBITDA-based Section 163(j) calculations and 100% bonus depreciation, with impacts to be assessed in Q3 2025100105 Note 13—Related Parties Discloses transactions and balances with related parties, such as Halliburton Company - The company has a lease agreement with Halliburton Company for an electric fracture stimulation crew, with a lease liability of $12.2 million as of June 30, 2025106107 - Capital expenditures paid to Halliburton for oil and natural gas properties were $40.2 million for the six months ended June 30, 2025106107 Note 14—Segment Reporting Confirms Vital Energy operates as a single reportable segment focused on the Permian Basin - Vital Energy operates as a single reportable segment, focusing on the exploration and development of oil and natural gas properties in the Permian Basin of West Texas108 - Net income (loss) is the primary metric used by the Senior Executive Team to evaluate performance and make capital allocation decisions108 Note 15—Organizational Restructuring Reports one-time expenses incurred due to a workforce reduction and related equity award forfeitures - During the three months ended June 30, 2025, the company incurred $4.6 million in one-time organizational restructuring expenses due to an approximate 10% workforce reduction, leading to the forfeiture of non-vested equity-based compensation awards for affected employees109 Note 16—Subsequent Events Details significant events occurring after June 30, 2025, including debt and derivative updates - Subsequent to June 30, 2025, the company borrowed $40.0 million and repaid $30.0 million on its Senior Secured Credit Facility, resulting in an outstanding balance of $755.0 million as of August 6, 2025111 - The company updated its open commodity derivative positions as of August 5, 2025, including new Waha Inside FERC to Henry Hub NYMEX basis swaps for 14,600,000 MMBtu in 2027 at a weighted-average differential of $(0.97)/MMBtu112 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, results of operations, and key drivers for the periods ended June 30, 2025 and 2024 Executive Overview Provides an overview of Vital Energy's business, strategic acquisitions, and key financial highlights for Q2 2025 - Vital Energy is an independent energy company focused on oil and natural gas properties in the Permian Basin, with growth primarily through strategic acquisitions since 2023115116 - Capital expenditures for full-year 2025 are projected between $850.0 million and $900.0 million, with $509.7 million incurred in the first half115116 - Second quarter 2025 highlights include a net loss of $582.6 million, driven by $427.0 million non-cash full cost ceiling impairment and $239.2 million income tax expense for a valuation allowance118 - Oil, NGL, and natural gas sales totaled $427.3 million, with oil production at 62,140 Bbl/d and total production at 137,864 BOE/d118 - Recent developments include volatility in WTI crude prices due to Middle East conflicts, U.S. tariff policies, increased OPEC+ production, and global recession concerns117119 - New or threatened tariffs could increase costs and reduce oil demand, adversely affecting financial results117119 Commodity Prices, Reserves and Full Cost Ceiling Test Discusses commodity price volatility, its impact on reserves, and the full cost ceiling impairment recorded - Commodity prices, particularly WTI crude, experienced volatility in Q2 2025, falling below $60/barrel at one point, influenced by geopolitical events, tariffs, OPEC+ production increases, and economic concerns119120 - Natural gas prices in the Permian Basin remained low, sometimes negative, due to transportation capacity constraints119120 - The company uses commodity derivatives to minimize price volatility, but continued declines could impact drilling project viability and reserve valuations121122123 - A full cost ceiling impairment of $427.0 million was recorded for Q2 2025 ($585.3 million YTD) due to unamortized costs exceeding the ceiling121122123 - This was based on Realized Prices of $71.47/Bbl for oil, $15.65/Bbl for NGL, and $0.98/Mcf for natural gas as of June 30, 2025121122123 - Hypothetical impairment analysis for Q3 2025, considering a drop in July 2025 oil prices to $65.45/Bbl from $83.38/Bbl in July 2024, suggests a potential additional impairment of $300 million to $400 million if current price levels persist128 Results of Operations Analyzes the company's financial performance, including revenues, costs, and non-operating items Revenues Details oil, NGL, and natural gas sales volumes, revenues, and average prices, including derivative impacts Oil, NGL, and Natural Gas Sales Volumes, Revenues, and Prices | Metric | Q2 2025 | Q2 2024 | YTD Q2 2025 | YTD Q2 2024 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Sales Volumes: | | | | | | Oil (MBbl) | 5,655 | 5,388 | 11,495 | 10,715 | | NGL (MBbl) | 3,573 | 3,173 | 7,057 | 6,107 | | Natural gas (MMcf) | 19,908 | 19,264 | 39,650 | 37,798 | | Oil equivalent (MBOE) | 12,546 | 11,771 | 25,160 | 23,121 | | Sales Revenues (in thousands): | | | | | | Oil | $365,605 | $441,667 | $787,937 | $857,451 | | NGL | $51,046 | $39,870 | $112,785 | $86,945 | | Natural gas | $10,631 | $(5,371) | $37,969 | $12,874 | | Total | $427,282 | $476,166 | $938,691 | $957,270 | | Average Sales Prices ($/Bbl or $/Mcf): | | | | | | Oil (without derivatives) | $64.65 | $81.97 | $68.55 | $80.03 | | NGL (without derivatives) | $14.29 | $12.57 | $15.98 | $14.24 | | Natural gas (without derivatives) | $0.53 | $(0.28) | $0.96 | $0.34 | | Average sales price ($/BOE, with derivatives) | $40.40 | $39.66 | $41.29 | $40.61 | - Total oil, NGL, and natural gas sales revenues decreased by 10% in Q2 2025 and 2% YTD Q2 2025, primarily due to lower average oil sales prices, despite increases in sales volumes across all product types131135139 - Natural gas sales revenues saw a significant increase due to a shift from negative to positive average sales prices131135139 Net Settlements Received (Paid) for Matured Commodity Derivatives (in thousands) | Commodity | Q2 2025 | Q2 2024 | YTD Q2 2025 | YTD Q2 2024 | | :---------- | :------ | :------ | :---------- | :---------- | | Oil | $53,513 | $(27,309) | $73,750 | $(43,887) | | NGL | $2,306 | $(754) | $113 | $(1,132) | | Natural gas | $23,739 | $18,801 | $26,382 | $26,757 | | Total | $79,558 | $(9,262) | $100,245 | $(18,262) | Costs and Expenses Breaks down various operating and non-operating costs, highlighting the impact of impairment and restructuring Total Costs and Expenses (in thousands) | Expense Type | Q2 2025 | Q2 2024 | YTD Q2 2025 | YTD Q2 2024 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Lease operating expenses | $107,750 | $113,742 | $211,235 | $219,470 | | Production and ad valorem taxes | $26,356 | $27,079 | $59,581 | $57,693 | | Oil transportation and marketing expenses | $10,649 | $12,199 | $20,769 | $22,032 | | Gas gathering, processing and transportation expenses | $5,380 | $5,088 | $12,136 | $7,464 | | General and administrative (excluding LTIP and transaction expenses) | $21,055 | $19,616 | $40,746 | $43,585 | | Organizational restructuring expenses | $4,627 | $0 | $4,627 | $0 | | Depletion, depreciation and amortization | $186,424 | $174,298 | $376,324 | $340,405 | | Impairment expense | $427,046 | $0 | $585,287 | $0 | | Total costs and expenses | $794,286 | $358,572 | $1,320,606 | $703,604 | - Total costs and expenses significantly increased by 122% in Q2 2025 and 88% YTD Q2 2025, primarily due to the $427.0 million (Q2 2025) and $585.3 million (YTD Q2 2025) full cost ceiling impairment expense141143156 - An additional $4.6 million in organizational restructuring expenses also contributed to the increase141143156 - Lease operating expenses (LOE) decreased by 5% in Q2 2025 and 4% YTD Q2 2025, and by 11% per BOE sold for both periods, driven by operational efficiencies and reduced workover expenses144148 - Gas gathering, processing, and transportation expenses increased due to contracts from a Q3 2024 acquisition144148 - Depletion expense per BOE sold remained relatively flat, with factors including decreased reserves due to commodity prices and acquisition impacts, offset by full cost ceiling impairments153 Non-Operating Income (Expense) Summarizes gains/losses on derivatives, interest expense, and other non-operating items Total Non-Operating Income (Expense), Net (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD Q2 2025 | YTD Q2 2024 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Gain (loss) on derivatives, net | $68,993 | $7,658 | $113,164 | $(144,489) | | Interest expense | $(49,854) | $(40,690) | $(100,234) | $(84,111) | | Loss on extinguishment of debt, net | $0 | $(40,301) | $0 | $(66,115) | | Other income (expense), net | $863 | $2,609 | $1,216 | $4,674 | | Total non-operating income (expense), net | $20,002 | $(70,724) | $14,146 | $(290,041) | - Net gain on derivatives significantly improved, shifting from a loss of $(144.5) million YTD Q2 2024 to a gain of $113.2 million YTD Q2 2025, primarily due to non-cash gains from decreasing market prices and positive settlements for matured derivatives157 - Interest expense increased due to higher borrowings on the Senior Secured Credit Facility for a Q3 2024 acquisition, partially offset by lower interest obligations on new senior unsecured notes issued in H1 2024160 Income Tax Benefit (Expense) Explains income tax expense, including the valuation allowance on deferred tax assets - Income tax expense for Q2 2025 and YTD Q2 2025 reflects a $237.9 million discrete charge for a valuation allowance on the federal net deferred tax asset, making the effective tax rate not meaningful162163 - This allowance was recorded due to the expectation of a cumulative three-year pre-tax loss162163 - As of December 31, 2024, federal net operating loss carryforwards totaled $897.0 million163 - The company expects to utilize $175 million to $225 million in 2025, but these deferred tax assets are fully offset by a valuation allowance as of June 30, 2025163 Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term obligations and fund operations Cash Requirements for Known Contractual and Other Obligations Details significant short-term and long-term contractual cash obligations as of June 30, 2025 Significant Cash Requirements for Contractual Obligations as of June 30, 2025 (in thousands) | Obligation Type | Short-term | Long-term | Total | | :-------------------------- | :--------- | :---------- | :---------- | | Senior unsecured notes | $131,342 | $2,286,631 | $2,417,973 | | Senior Secured Credit Facility | $0 | $745,000 | $745,000 | | Electricity purchase commitments | $47,824 | $180,547 | $228,371 | | Operating lease commitments | $37,953 | $45,205 | $83,158 | | Asset retirement obligations | $5,432 | $75,620 | $81,052 | | Firm transportation commitments | $18,264 | $13,711 | $31,975 | | Sand purchase commitments | $20,253 | $10,848 | $31,101 | | Total | $261,068 | $3,357,562 | $3,618,630 | Cash Flows Summarizes cash flows from operating, investing, and financing activities and capital investments Cash Flow Summary (in thousands) | Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $603,326 | $496,991 | $106,335 | 21% | | Net cash used in investing activities | $(471,423) | $(432,335) | $(39,088) | -9% | | Net cash used in financing activities | $(141,888) | $(22,153) | $(119,735) | -540% | | Net increase (decrease) in cash | $(9,985) | $42,503 | $(52,488) | -123% | - Operating cash flows increased by $106.3 million, primarily due to higher net settlements from matured derivatives172173 - Investing activities used more cash, increasing by $39.1 million, driven by a $70.8 million rise in capital expenditures for oil and natural gas properties, partially offset by $22.1 million from divestitures172173 - Financing activities used significantly more cash, increasing by $119.7 million, mainly due to $500.0 million in payments on the Senior Secured Credit Facility, partially offset by $365.0 million in borrowings177 Capital Investments (excluding non-budgeted acquisition costs, in thousands) | Investment Type | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Oil and natural gas properties | $505,459 | $418,786 | $86,673 | 21% | | Midstream and other fixed assets | $4,237 | $9,124 | $(4,887) | -54% | | Total | $509,696 | $427,910 | $81,786 | 19% | Sources of Liquidity Identifies available cash, credit facility capacity, and other sources of funding - As of June 30, 2025, Vital Energy had $30.2 million in cash and cash equivalents and $655.0 million in available capacity under its Senior Secured Credit Facility, totaling $685.2 million in liquidity167179 - The facility has a $1.4 billion borrowing base and $745.0 million outstanding167179 - The company's wholly-owned subsidiary, Vital Midstream Services, LLC, fully and unconditionally guarantees all outstanding senior unsecured notes, which totaled approximately $1.6 billion as of June 30, 2025181 Critical Accounting Estimates Confirms no changes to critical accounting estimates, emphasizing judgments in reserve and impairment calculations - There have been no changes to the company's identified critical accounting estimates during the six months ended June 30, 2025184185 - These estimates, including those for oil, NGL, and natural gas reserve quantities and the full cost ceiling calculation, involve significant judgments and assumptions that could materially affect reported amounts184185 Item 3. Quantitative and Qualitative Disclosures About Market Risk Details exposure to market risks from commodity price and interest rate fluctuations, and derivative hedging strategies - Vital Energy uses commodity derivative transactions (puts, swaps, collars, basis swaps) to hedge price risk for anticipated sales volumes of oil, NGL, and natural gas, aiming to mitigate cash flow variability187 Sensitivity Analysis of Commodity Derivative Asset Position (in thousands, as of June 30, 2025) | Metric | Amount | | :---------------------------------------- | :------- | | Commodity derivative asset position | $117,913 | | Impact of a 10% increase in forward commodity prices | $(205,563) | | Impact of a 10% decrease in forward commodity prices | $205,595 | - The company's Senior Secured Credit Facility bears interest at a floating rate (7.171% as of June 30, 2025), exposing it to interest rate risk, while its senior unsecured notes bear fixed rates189 Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - Vital Energy's management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025190 - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal controls191 Part II Item 1. Legal Proceedings Discusses ongoing legal proceedings and management's assessment of their potential impact on the company - Vital Energy is subject to various legal proceedings arising in the ordinary course of business, including those related to federal, state, and local laws, personal injury, title disputes, royalty disputes, contract claims, contamination claims, and environmental claims193 - Despite inherent uncertainties, the company believes that any adverse outcomes from these legal proceedings will not have a material adverse effect on its business, financial position, results of operations, or liquidity193 Item 1A. Risk Factors Updates risk factors, highlighting tariffs and commodity price volatility as key threats to financial results and property valuations - New or increased tariffs imposed by the U.S. government and potential retaliatory measures could raise the company's supply chain costs or reduce demand for oil and natural gas, adversely affecting results of operations, financial position, and cash flows195196197 - Due to the volatility in oil, NGL, and natural gas prices, the company has incurred and may continue to incur significant non-cash full cost ceiling impairments on its properties198199 - Impairments of $158.2 million (Q1 2025) and $427.0 million (Q2 2025) were recorded, following a $481.3 million impairment in 2024198199 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered equity sales and details common stock repurchases for tax withholding obligations - No unregistered sales of equity securities occurred during the period202 Issuer Repurchases of Equity Securities (Common Stock) | Period | Total shares purchased | Weighted average price paid per share | | :----------------------------- | :--------------------- | :------------------------------------ | | April 1, 2025 - April 30, 2025 | 694 | $20.11 | | May 1, 2025 - May 31, 2025 | 1,298 | $14.60 | | June 1, 2025 - June 30, 2025 | — | — | | Total | 1,992 | | - The repurchased shares represent those withheld by the company to satisfy tax withholding obligations upon the lapse of restrictions on certain equity-based compensation awards203 - No shares were repurchased under the $237.3 million share repurchase program during Q2 2025203 Item 3. Defaults Upon Senior Securities Confirms no defaults occurred on senior securities during the quarterly period - There were no defaults upon senior securities during the quarterly period ended June 30, 2025204 Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to Vital Energy, Inc205 Item 5. Other Information Reports no changes in Rule 10b5-1 trading arrangements by directors or officers - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period ended June 30, 2025206 Item 6. Exhibits Lists all exhibits filed with the Quarterly Report on Form 10-Q, including key organizational and certification documents - The exhibits include the Second Amended and Restated Certificate of Incorporation, Fourth Amended and Restated Bylaws, various indentures for senior unsecured notes, certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1), and Inline XBRL financial information (Exhibits 101, 104)207 Signatures Certifies the report's compliance with the Securities Exchange Act of 1934, signed by key executives - The report is duly signed on August 6, 2025, by Jason Pigott (President and Chief Executive Officer), Bryan J. Lemmerman (Executive Vice President and Chief Financial Officer), and Stephen L. Faulkner, Jr. (Vice President and Chief Accounting Officer), certifying its compliance with the Securities Exchange Act of 1934212214